Till her ministerial responsibilities made it difficult, Union Finance Minister Nirmala Sitharaman would participate in a family ritual every summer–making avakkai pickle.
1/nThe sacred annual Andhra ritual: making year-long stock of pickles. Guided by mother-in-law & elder sister-in-law. pic.twitter.com/3lUUF1qPsE
— Nirmala Sitharaman (@nsitharaman) May 3, 2015
This summer, India’s first woman finance minister will find herself dealing with another kind of pickle--a flagging economy and an employment crisis. That’s what various economic data released on the day Sitharaman took charge of the finance ministry, show. The green shoots that appeared in the first few years of the first Narendra Modi government have truly withered away.
The pickle example has not been chosen because of Sitharaman’s gender. Even the men in her family are part of the exercise; each member has a specified task and has to deliver on that. Similarly, the state of the economy too is not the sole responsibility of the finance ministry alone. Other ministries, especially the economic ones, also have to pitch in with the right ingredients.
The lowest annual growth rate in five years of 6.8 percent is because of a slowdown that is quite broad-based. Only three sectors have done better in 2018-19 than the previous year-manufacturing, construction and financial, real estate and professional services. Even in these, the quarterly break up in some shows worrying signs.
The manufacturing sector, for example, shows that after a steady climb from the second quarter of 2017-18 there has been an equally steady descent from the first quarter of 2018-19, when quarterly growth touched 12.1 percent. The sector grew just 3.1 percent in the fourth quarter of 2018-19. Even the seasonal spike in the third quarter growth (because of the festival season) is lower than that of the previous year. The retail and agriculture sectors (both of which have underperformed relative to 2017-18) also show poor quarterly performance, with the latter recording negative growth.
An investment revival is the need of the hour. The investment rate picked up in 2018-19 to touch 29.3 percent, after remaining in the 28 percent range since 2015-16, but it needs to cross the 30 percent mark. It did in the United Progressive Alliance tenure (it was 31.6 percent in 2013-14) but that was based on irrational exuberance that could not last. What Sitharaman needs to ensure is a more realistic and sustainable investment revival.
For this, consumption needs to be revived. It is only when people start buying more that factories will start producing more and expanding when capacities get choked, leading to more direct and indirect jobs. Private final consumption expenditure may be 59.4 percent of GDP but it has remained static in the 59 percent range since 2016-17.
The Reserve Bank of India’s quarterly OBICUS (order books, inventories and capacity utilisation survey) for the third quarter of 2018-19 shows capacity utilisation increasing since the first quarter of that fiscal, but still only at around 76 percent. The OBICUS also shows a dip in new orders, something that comes out from the Nikkei India Manufacturing PMI (purchasing managers index) and Services PMI data for April as well.
Some of the slowdown is being attributed to the elections and the crisis in the non banking financial sector (NBFCs) as well. The latter is clearly Sitharaman’s responsibility as finance minister and she needs to double down on this. NBFCs are not only an important source of consumer finance but also of funding for the micro, small and medium industry as well, which is an important avenue of self employment. Fortunately, the MSME ministry is now under the charge of the dynamic Nitin Gadkari and if he and Sitharaman work in alignment, the seeds of a revival can be sown soon. Access to finance is still a big issue for the MSME sector and the two need to address this at the earliest.
Another fortunate development is that Gadkari continues to be in charge of the roads ministry and Piyush Goyal of the railways ministry. Large infrastructure projects, both in the public sector and private sector, are the need of the hour to revive growth and, consequently, employment. But they will need support from the finance ministry. This need not necessarily mean more budgetary allocation.
Gadkari has always held that he does not require money from the exchequer and is always bursting with ideas for off-budget financing, something Goyal is also capable of, but even this will need a supportive finance ministry. Sitharaman has to help out by reining in the tax bureaucracy which is ever on the lookout to complicate financial arrangements.
If the government wants an investment revival the tax regime has to be simpler and all scope of harassment has to be eliminated. Large infrastructure projects can be a big boost to the construction sector, which is a major source of employment.
Agriculture growth in 2018-19 at nearly half of the previous year’s growth is deeply worrying. It is no wonder that the new cabinet’s first decisions related to farmers. The PM-KISAN scheme has been extended to all landholding farmers and a pension scheme for farmers has also been announced. Sitharaman will be expected to find the money for this, which will lead to the dilemma of encouraging individual sectors without affecting overall macro stability. Her colleagues, agriculture minister Narendra Singh Tomar, and animal husbandry and fisheries minister Giriraj Singh will need to cooperate with her in this – they need to come up with ideas that go beyond handouts and fiscal sops.
On both infrastructure and agriculture, state governments have a huge role to play. Agriculture is a state subject and states are where most of the smaller infrastructure projects are located. As finance minister, Sitharaman will need to get them on board as well. One thing going in her favour is that most state governments are controlled by the BJP; even those who are not are hardly likely to pass up any opportunity to help their states (the GST Council has shown that chief ministers put state benefits higher than party loyalty).
The pickle-making in Sitharaman’s family may have been supervised by a family elder. In her position as finance minister, she is now in that position. Hopefully, she has learnt all the right lessons in getting together a diverse mix of ingredients and preparing them carefully and will be able to bring that experience to bear in spicing up the economy.
(The writer is a senior journalist and author. She tweets at @soorpanakha)
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Updated Date: Jun 01, 2019 12:36:32 IST